Can the minutes of the ECB meeting indicate when the central bank will raise interest rates?

How long do the European Central Bank interest rate makers expect to continue buying bonds, and when are they likely to raise interest rates from ultra-low levels? These key issues will be more clarified after the minutes of the ECB policy meeting last month will be released on Thursday.

Investors may look for any clues in the minutes of the meeting to understand how the debate among decision makers of the European Central Bank about the major decisions to be made at the next policy meeting on December 16 has formed.

Most investors expect the European Central Bank to state next month that its 1.85 trillion euro flagship bond purchase program launched last year in response to the pandemic will end in March 2022. However, it is widely expected that the central bank will take measures while strengthening its long-term asset purchase plan to limit any selling in the bond market.

Due to the promise not to raise interest rates before stopping the purchase of bonds at the time of issuance, the decision next month will send an important signal about the time of the first interest rate hike. In particular, investors bet that the European Central Bank may raise interest rates in early 2023 in response to higher-than-expected inflation caused by soaring energy prices and supply chain bottlenecks.

“In the medium term, we believe that there is enough upward inflationary pressure to make the ECB’s own forecast reach or exceed its 2% target in the medium term, so it will be able to announce the completion of the mission and raise interest rates,” Carsten said. Brzeski, head of macro research at ING. Martin Arnold

How will business activities in the UK and the Eurozone develop?

An important survey of British business activity to be conducted on Tuesday will provide a snapshot of economic performance in recent weeks.

The IHS Markit Purchasing Managers Index unexpectedly showed an improvement in growth momentum in October. Although analysts expect a slowdown in November, a positive surprise may affect expectations for whether the Bank of England will raise interest rates in December.

Economists surveyed by Reuters predict that the initial value of the service sector PMI in November will fall from 59.1 in the previous month to 58.5.

Investec economist Sandra Horsfield said that she expects a “slightly slowdown” in the composite index in November, which averages services and manufacturing, because she expects “manufacturing will continue to be constrained by supply chain shortages, as well as continuing staff shortages. May hinder output growth in manufacturing and services.” She added that price pressures “may also become a key theme of the report.”

The Eurozone Purchasing Managers’ Index is expected to be even more pessimistic, as companies not only face soaring costs and continued supply chain disruptions (as in the UK), but the rising coronavirus infection rate has led many countries to re-implement new restrictions.

Therefore, analysts predict that the Eurozone service sector PMI index will fall to 53.6 in November from 54.6 in October, the lowest level since April. The same figure in Germany, where the infection rate has risen particularly fast, is expected to drop to 51.5. Valentina Rome

Will PCE inflation data increase the reason for US interest rate hikes?

Earlier this month, sensational consumer price data showed that the US inflation rate in September rose at the fastest rate in 30 years. But the Fed’s preferred inflation indicator-the personal consumption expenditure price index-will be announced on Wednesday, and the market will pay close attention to further signs of price pressure.

Evidence of this pressure has prompted market speculation that the U.S. central bank may be forced to increase borrowing costs faster than expected. The Fed announced earlier this month that it would begin to slow down its quantitative easing program during the pandemic, but investors’ attention soon turned to the possibility of raising interest rates.

According to the Chicago Mercantile Exchange Group’s FedWatch, the market currently predicts that by the end of 2022, the probability of three 25 basis points of interest rate hike is about 80%, and the probability that the first rate hike will be carried out as early as June is more than 50%. tool. A month ago, the probability of three interest rate hikes by December was about 25%.

PCE data reflects changes in household expenditures. A subsection of the data known as the core PCE has discounted the impact of the fluctuating food and energy sectors and is particularly closely watched. TD Securities analysts said they expect PCE data to show strong price increases, but at a slower rate than the CPI index. They estimate that the year-on-year change may rise from 3.6% to 4.1%. They also expect that the report will show that consumers are beginning to reduce their excess savings, which means that well-known expenditures will exceed income and the savings rate may drop below the level before the new crown epidemic. Kate Duguid